Global X ‘Cheap’ MLP ETF Launches

August 07, 2013

The New York-based ETF firm offers its third MLP-related ETF.

Global X Funds today is launching its third ETF focused on master limited partnerships, as the fund firm continues to mine the high-yielding world of MLPs at a time when the low-yielding fixed-income environment continues to challenge income-seeking investors.

This fund, the Global X MLP & Energy Infrastructure ETF (NYSEArca: MLPX) will sport a management fee of 45 basis points, or $45 for each $10,000 invested, according to the fund’s most recent prospectus. It appears that really is the annual fee of the fund, a not-so-subtle subtlety that would make MLPX the cheapest MLP-related fund on the market.

At first blush, the new fund does have the same management fee as Global X’s first fund focused on the space, the Global X MLP ETF (NYSEArca: MLPA), which made its debut in April 2012. But MLPA is a C-Corp., while the prospectus detailing the new ETF, “MLPX,” describes an ETF that’s registered under the Investment Company Act of 1940.

From a total fund cost perspective, that matters a lot. In other words, the 0.45 percent management fee on the first fund, MLPA, comes before “other expenses,” such as deferred income taxes. Those bring total costs of MPLA to 352 basis points, according to information posted on the fund sponsor’s website.

In comparison, the cost of the new ETF going live on Wednesday, Aug. 7, MLPX, is likely to be 0.45 percent. The catch is that its holdings can’t be 100 percent MLPs, as is the case with C-Corp. MLP ETFs such as MLPA.

The Solactive MLP & Energy Infrastructure Index on which the new fund MLPX is based tracks the performance of MLPs and energy infrastructure corporations—with that word “corporations” being crucial to what the fund can and cannot hold.

For an example, only about a quarter of its holdings can be actual master limited partnerships. The other holding are in the same business, but are not structured as MLPs, which gives the fund differing tax treatment.

Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering and processing natural gas, natural gas liquids, crude oil or refined products, the prospectus said.

MLP ETFs Still Attractive

Whatever the sizable tax implications of C-Corp. MLP ETFs, such funds shoot off an impressive yield—a 5.77 percent 30-day SEC yield in the case of MLPA. That’s more than the yield of the new fund, though after tax time, MLPA’s extra yield looks less attractive.

In any case, investors continue to flock to them at a time of near-zero official interest rates and, worse yet, when any normalization of rates could mean capital losses for those with fixed-income holdings in a bond fund.

The biggest of the six existing MLP ETFs is the $6.8 billion Alerian MLP ETF (NYSEArca: AMLP). However, Global X’s latest offering looks like another iteration of the First Trust North American Infrastructure ETF (NYSEArca: EMLP), which currently manages some $423 million in assets.

Nine MLP ETNs, which don’t share the deferred-tax characteristic of MLP ETFs, are also on the market. Among those are the JPMorgan Alerian MLP ETN (NYSEArca: AMJ), which has $5.71 billion in assets, according to data compiled by IndexUniverse.

New York-based Global X’s third master limited partnership exchange-traded fund is the Global X Junior MLP ETF (NYSEArca: MLPJ), which has almost $12 million in assets and an annual management fee of 75 basis points.

 

 

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